Foreign direct investment plays a critical role in the Indonesian economy, driving growth and fostering international business relationships. Foreign investors looking to enter the Indonesian market often establish a Foreign Investment Company, or Perusahaan Penanaman Modal Asing (PMA). As a PMA, businesses enjoy the ability to operate legally in Indonesia while benefiting from the country’s economic potential.
In this article, ET Consultant explores what a PMA is, the steps for establishing one, and the legal framework governing foreign investment in Indonesia.
What is a PMA?
A PMA (Penanaman Modal Asing) is a limited liability company in Indonesia that is partially or wholly owned by foreign investors. It allows international investors to conduct commercial activities, manufacture goods, and provide services within Indonesia. PMAs are vital in sectors like mining, manufacturing, retail, and real estate, among others.
Foreign ownership regulations are governed by Law No. 25 of 2007 on Investment (the Investment Law), which outlines the industries open to foreign investment and the maximum allowable foreign ownership percentages.
The Benefits of Establishing a PMA
Establishing a PMA in Indonesia offers various advantages for foreign investors, such as:
- Full Legal Compliance: A PMA provides legal certainty for foreign businesses, allowing them to operate under Indonesian law.
- Tax Benefits: Certain sectors may enjoy tax incentives, such as exemptions or reductions.
- Access to Indonesia’s Large Market: A PMA gives foreign investors access to Indonesia’s massive consumer base of over 270 million people.
- Investment Protection: Through bilateral investment treaties and local regulations, investors’ rights are safeguarded.
Read More: NIB: Complete Guide for Businesses in Indonesia
The Process of Establishing a PMA in Indonesia
Setting up a PMA in Indonesia involves several legal and administrative procedures. Below is an overview of the main steps involved:
- Determine the Investment Sector: The first step is determining whether the business activity falls under the sectors open to foreign investment. This information can be found in the Positive Investment List as per the latest Presidential Regulation No. 10 of 2021 concerning the Investment Business Fields.
- Prepare the Necessary Documents: The investor must prepare documentation, including:
- A copy of the foreign investor’s passport (for individuals).
- Articles of association for the foreign company (for corporate investors).
- Draft of the intended business activities and capital structure.
- Minimum Capital Requirements: Under current regulations, a PMA is required to have at least IDR 10 billion in paid-up capital (approximately USD 700,000).
- Application for Business Identification Number (NIB): Investors must apply for a NIB through the Online Single Submission (OSS) system. The NIB functions as the business registration number and includes import and export permits if applicable.
- Approval of Deed of Establishment: The PMA’s establishment must be notarized and registered with the Ministry of Law and Human Rights (MOLHR), which grants the legal status of the entity.
- Business License and Sectoral Permits: Depending on the industry, foreign investors may need to apply for sector-specific licenses. These licenses ensure that the PMA can operate within its respective industry.
Legal Framework for Foreign Investment in Indonesia
The primary regulation governing foreign investment in Indonesia is Law No. 25 of 2007. Additionally, the Job Creation Law (Omnibus Law) No. 11 of 2020 introduced significant reforms to make Indonesia more attractive for foreign investors by simplifying regulations, removing barriers, and introducing tax incentives.
Under these regulations:
- Certain business fields are open with 100% foreign ownership.
- Restrictions are based on the Positive Investment List, which replaced the former Negative Investment List.
- Investors must comply with Indonesia’s labor, environmental, and taxation laws.
Read More: Choosing The Right KBLI Code That Suits Your Business
Key Requirements for Foreign Investment
Foreign investors must meet the following key requirements when setting up a PMA in Indonesia:
- Foreign Ownership Limits: Depending on the sector, foreign ownership may be restricted to a certain percentage, or in some cases, may be wholly foreign-owned.
- Capital Requirements: As mentioned, there is a minimum capital requirement, which ensures that only serious investors enter the market.
- Compliance with Local Regulations: PMAs must comply with local labor laws, hire a minimum percentage of Indonesian employees, and adhere to reporting obligations to the Indonesia Investment Coordinating Board (BKPM).
- Tax and Legal Reporting: Like any company in Indonesia, PMAs must file regular tax returns, maintain a local bank account, and ensure transparency in financial operations.
Conclusion: Navigating Foreign Investment with ET Consultant
Setting up a PMA in Indonesia is an exciting opportunity but requires thorough understanding and compliance with local laws. As a foreign investor, you must carefully navigate investment laws, capital requirements, and sectoral restrictions to establish a successful business in Indonesia.
At ET Consultant, we specialize in providing expert guidance for foreign investors. From incorporation to licensing and compliance, we ensure your business is established and runs smoothly under Indonesia’s regulatory framework. Contact us today for a consultation on how to set up a PMA and secure your investment in Indonesia.
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ET Consultant is a Business Consultant and Legal Consultant Expert that provides support for local and multinational clients to start and manage their business operations in Indonesia. ET Consultant specializes in Business Incorporation, Licensing & Legal, Accounting & Taxes, Immigration, and Advisory Services.
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